6 December 2022 by and Disppute Resolution Alert

Challenging another Goliath? Ma-Afrika’s new Constitutional Court battle to mitigate the impacts of the COVID-19 pandemic on the tourism sector

Force majeure, is a clause in contracts which absolves both parties from liability or obligations in terms of that contract when an extraordinary event or circumstance beyond the control of the parties occurs. What happens in the absence of such a clause you may ask?

Ma-Afrika Group Holdings (Pty) Ltd (Ma-Afrika) in another recent David v Goliath effort has launched an application for leave to appeal in the Constitutional Court following an eviction order brought by its landlord Venezia Trust. The application seeks to change the common law application of “supervening impossibility” in light of the effects that the COVID-19 pandemic has had on the law of landlord and tenant.

In the first instalment of the matter on 7 October 2021 in Santam Limited v Ma-Afrika Hotels (Pty) Ltd and Another (255/2021) [2021] ZASCA 141 (7 October 2021) Ma-Afrika took on, and won against, the insurance Goliath Santam Limited. In this case Santam was ordered to pay out Ma-Afrika’s 18-month business interruption coverage which was activated as a result of the COVID-19 pandemic, which was an event that was unforeseen by and beyond the control of all parties.

Challenging common law

Ma-Afrika has now undertaken to challenge the age-old Goliath of the common law and has asked the Constitutional Court to develop the common law position regarding supervening impossibility and lease law, to allow a tenant, in the interests of justice and public policy, to raise partial remission of rent as a defence at the time when a landlord seeks to evict a tenant for non-payment of full rent.

Ma-Afrika’s request for the development of the common law is grounded in the concept of force majeure. Force majeure is a clause in contractual agreements which absolves both parties from liability or obligations in terms of that contract when an extraordinary event or circumstance beyond the control of the parties occurs.

In the aftermath of the COVID-19 pandemic, more contracts, including contracts for lease, sale or other commercial contracts now include a force majeure clause to regulate so called “acts of God”. In the absence of a force majeure clause in a contractual agreement, the law defaults to the common law position and regulates the effects of any “supervening impossibility” such as an “act of God” on the contractual arrangement.

Conditions for “supervening impossibility

The common law position regarding “supervening impossibility” was reiterated in the locus classicus case of Glencore Grain Africa (Pty) Ltd v Du Plessis NO and Others [2007] JOL 21043 (O) which establishes that while an “act of God” is in general a “supervening impossibility” event, not all “acts of God” legally excuse a party from non-performance of contractual duties and obligations. Glencore establishes that certain conditions need to be met for a “supervening impossibility”:

  • the impossibility must be objectively impossible;
  • it must be absolute as opposed to probable;
  • it must be absolute as opposed to relative, in other words if it relates to something that can in general be done, but the one party seeking to escape liability cannot personally perform, such party remains liable in contract;
  • the impossibility must be unavoidable by a reasonable person;
  • it must not be the fault of either party; and
  • the mere fact that a disaster or event was foreseeable, does not necessarily mean that it ought to have been foreseeable or that it is avoidable by a reasonable person.

Ma-Afrika in order to develop the common law will likely rely heavily on public policy and other special considerations to motivate that the doctrine of “supervening impossibility” should be developed to cater for its lease relief. Although the Supreme Court of Appeal in Transnet Ltd t/a National Ports Authority v Owner of MV Snow Crystal held that in order to determine whether the supervening impossibility doctrine applies, it is necessary to look at factors such as the nature of the contract, the relationship of the parties, the circumstances of the case and the nature of the impossibility. A primary obstacle in Ma-Afrika’s way is that performance of an obligation will not be objectively impossible if that performance has merely become more onerous, difficult or costly.

Accordingly, it may be difficult for Ma-Afrika to argue against this point as even though it did receive late payment of the business interruption insurance pay out in the Santam case, Ma-Afrika did receive interim relief payments from the insurer meaning that there was money available (however minimal) for Ma-Afrika to fulfil its lease obligations towards the Venezia Trust.

It remains to be seen whether South Africa’s apex court will accept a favourable view that partial performance of obligations is sufficient during times of supervening impossibility, in order to relieve some of the hardships that have fallen upon the tourism and other sectors as a result of the COVID-19 pandemic.

Defining what constitutes an “act of God

At a very least, should the apex court decide in favour of Ma-Afrika and develop the common law it would have to develop the common law in a limited fashion, as generally it is legally impermissible to condone partial performance of obligations on such a widespread scale. The apex court may also, if it wishes to develop the common law, have to finally provide a concrete definition or an acceptable, open and interpretive list of what constitutes an “act of God”.

On the other hand, a primary weapon that Ma-Afrika has in its arsenal in favour of common law development is public policy. Public policy by way of a simple definition is an institutionalised proposal or a decided set of elements such as laws, regulations, guidelines, and actions to solve or address relevant and real-world problems.

In common law, fault need not be present to establish breach of contract and partial performance of contractual obligations may constitute repudiation of the contract. The balancing exercise is therefore not all that simple.

The question is: how many Goliaths will the courts have to fell in order to adequately mitigate the effects of force majeure events such as the COVID-19 pandemic.

It remains to be seen whether Ma-Afrika can succeed in its new David verses Goliath battle.

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